Changing Economic Environment in India

CHANGING ECONOMIC ENVIRONMENT IN INDIA

SUBMITTED BY:-Manish, Roll No.13Manisha, Roll No.14Mehak, Roll No.15

OVERVIEW The economic environment has been

changing nationally and internationally for the last two decades.

There has been Quantitative and Qualitative shift in trade and business opportunities across nations of the world.

Furthermore, with advent of Liberalization, Structural Reforms and innovations in Information Technology, there is a significant increase in the mobility of Capital, Knowledge, Technology and Materials, which has increased the volatility in economic performance of India.

WHAT IS BUSINESS ENVIRONMENT?

Business Environment refers to sum total of all factors-economic, political, legal, social, international etc. which affect the business directly/indirectly; positively/negatively; to larger/smaller extent.

Environment is very important for business enterprises because business firms have to operate in a given environmental factors, which are numerous and complex; static/dynamic; economic/non-economic.

COMPONENTS OF ENVIRONMENT A Business Firm cannot operate in

vacuum. It has to work in certain economic and non- economic constraints.

So, It can be divided into two parts-1) Micro Env. Factors:-

Customers Suppliers Labour Competitors Regulatory Agencies

COMPONENTS OF ENVIRONMENT2) Macro Env. Factors:-

Economic Environment Factor Political Environment Technological Environment Demographic Environment Natural Environment Socio-Cultural Environment

WHAT IS ECONOMIC ENVIRONMENT Economic Environment is those

economic factors which have their affect on the working of the business.

Economic Environment is affected by other Micro and Macro Environmental Factors, such as-Economic System Economic PoliciesEconomic GrowthMonetary PoliciesCurrency Exchange RateLevel of Income Distribution

ECONOMIC FACTORS AFFECTING ECONOMIC ENVIRONMENT

Economic Policy:- Government play a crucial, regulatory and supervisory role in the economic system by the use of fiscal policy, industrial policy, annual budget etc.

Economic Growth:- The economic performance and growth of economic industry and business is heavily dependent on growth of economy as a whole.

Interest Rate:- Lower Interest Rate provide healthy opportunity for business while higher interest rate is unhealthy for business.


Currency Exchange Rate:-It is very much useful for import-export regulations as per economy and business requirement.

Economic Legislation:-Governments of different countries frame various legislations which regulate and control business and economy.

Level of Income:-Any improvement in level of income will drive business in positive direction.

Economic Condition:-Any improvement in economic condition such as standard of living, purchasing power affects the size of market.


Distribution of Income & Wealth:-If Income and wealth is distributed in such a way that it is decentralized from few people to many, then it increases demand in market.

International Economic Environment:-It includes international economic condition, economic trends in policy and certain other economic-political environment that has a great impact on business for export-import policy, technology transfer etc.

DIFFERENT VIEWS As per BRIC Report, Goldman Sachs,

India has never been so dynamic, vibrant and full of business opportunities.(Business Week, Aug 05)

As per Peter Loescher, President & Chief Executive, Siemens, India will be among the 3 largest economies in the world by 2032.

As per John Redwood Economic Competetiv- eness Policy Group ,UK, India is now truly a land of opportunity.

FUTURE PROSPECTS OF INDIAN ECONOMY

As per Goldman Sachs Report, there are 50,000 crorepatis in India and the number is still increasing. India will be economic super power by 2050. Indian economy has highest saving rate in the world. As per recent estimate, India will surpass China by 2020 as a fastest growing economy.

Indian economy is directed towards inclusive growth that is driven by affirmative action like – Food Security Bill, MGNREGA, Right to Education Bill, Employment Guarantee Bill etc.

FUTURE PROSPECTS OF INDIAN ECONOMY

MAJOR CAUSES FOR CHANGING ECONOMIC ENVIRONMENT IN 1991

Increase in Fiscal Deficit. Deficit in Balance of Payment. External Borrowings. Mounting Inflation Rate. Failure of the public sector. Industrial Licensing policies Gulf Crisis

CHANGES IN ECONOMIC POLICY AND GROWTH RATE

Since Independence, India followed Democratic Socialism-

Growth Rate: 1951-56 :- 3.6% War Period: 1961-66 :-2.5% 1991 Onwards, India followed liberalized

economic policy- Growth Rate: 1992-97 :- 6.7% In 2008, India was the second fastest

growing economy in the world, but slowdown in 2009.

MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT Indian market environment changes

from seller market to buyer market. In 1991, New Economic Policy can be

said as a bloodless revolution in Indian economy or RENAISSANCE of Indian economy.

Private participation was allowed in many government monopoly areas like- air travel, power, infrastructure etc.

Many reserved areas for small scale industry were open to all.

MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT

Many Indian MNC’s like Tata, Airtel, Hindalco etc started acquiring foreign industries.

Microfinance companies started growing in rural and suburban areas.

PPP[public private partnerships] & PPCP[public private community partnership] are the new emerging concepts of Indian economy.

Hindu growth rate of India converted into second fastest growing economy of the world.

CHANGING PATTERN OF RESOURCE ALLOCATION IN INDIA’S ECONOMIC PLANS

Heads of development

1st 2nd

3rd 4rth

5th 6th 7th 8th 9th 10th

Agriculture & Irr.

37.0

20.9

20.5

23.3

22.1

22.2 20.2 20.6

19.4

20.06

Power 7.6 9.7 14.6

18.6

18.8

16.7 17.4 18.7

25.4

26.47

Industry 4.9 24.1

22.9

19.7

24.3

26.5 23.7 18.8

8.2 4.00

Transport & Comm.

26.4

27.0

24.6

19.5

17.4

16.0 17.1 18.7

19.8

21.3

Social services

24.1

18.3

17.4

18.9

17.4

18.6 21.6 23.2

27.2

28.17

Total 100 100 100 100 100 100 100 100 100 100

PHASES OF INDIAN ECONOMIC ENVIRONMENT

Phase 1:- Open Foreign Investment Policy; relatively open trade policy until the late 1950s; investment licensing began to tighten only towards the late 1950s.

Phase 2:- Socialism struck with Vengeance.

Phase 3:- Ad hoc Liberalization during 1975-79, 1980-84 and then more substantial liberalization during 1985-86 and 1986-87.

Phase 4:- Systematic Liberalization from 1991 onwards.

YEAR-WISE GROWTH RATE

2007

2008

2009

2010

GDP Growth

9.40%

7.30%

5.40%

7.20%

CPI 6.40%

9.30%

5.50%

4.90%

NATIONAL INCOME AND PER CAPITA INCOME

National Income (Rs.Crore)

Per Capita Income (Rs.)

1996-97 9,85,162 10,708

2000-01 17,02,454 16,701

2001-02 18,64,292 17,978

2002-03 19,91,063 18,876

2003-04 27,43,000 25,804

CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT High inflationary pressures compelling

for tightening monetary policy that results in higher cost of money.

Reforms in banking sector are still low. Interest Rate is still very high compared

to developed world. Deficit Financing (currently 10.3% of

GDP) Lower Per Capita Income(143rd in world)

CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT Agriculture Sector require major reforms

and thrust to keep pace of growth because Agricultural growth rate is between 2 to 3 percent.

Political hurdle in implementing economic policy.

CHANGING ECONOMIC ENVIRONMENT AND GROWTH The Indian economy provides a

revealing contrast between how individuals react under a government controlled environment and how they respond to a market based environment.

Evidence suggests that recent market reforms that encouraged individual enterprise have led to higher economic growth in the country.

INDIAN ECONOMIC ENVIRONMENT-2010 In order to keep up the economic growth

during times of the worst recession, govt. authorities in India have announced the stimulus packages to bolster economic growth.

To finance the stimulus packages, the Indian govt. has raised over $100 billion over the last four quarters.

The country’s public debt, acc. To the RBI, has zoomed to more than 50% of the total GDPI.

INDIA’S ECONOMIC GROWTH PROSPECTS IN 2011 Business Review India gives a cut-to-cut

report on how positively Indian domestic markets have grown and which are the major cities that helped channelize this growth.

Carlsbad ,CA, Feb 10,2011- India is on a roll. The country’s socio-economic structure has seen tremendous improvement since the last decade when the tools of the economic development started contributing to create a financial makeover of the country.

HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY Reduce unnecessary interference of

bureaucracy. Reduce fiscal deficit. Market should be made competitive. Growth in equity, both in respects of

region and class. Necessary improvement in

infrastructure. Industrialization should not be

hampered for political advantages.

HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY Market should be made more informative in

either case, product or service. Cost for money for business sector to be

made cheap by reforms in banking sector. Facilities for professional and technical

training be increased. Indian economy to be made more regulated

and with maximum transparency in policy. Better food inflation plan. Higher growth rate required for agriculture.